Opinion
Index No. EF2017-64764
04-21-2023
BPS Lot 3, LLC and BPS LOT 13, LLC, each Individually and in the Right of BELL POINT SHORES HOMEOWNERS ASSOCIATION, INC., on Behalf of All Other Members of said Corporation Similarly Situated, Plaintiffs, v. Thomas J. Damiani, JOSEPH A. JORDAN, EVERETT R. VALLORANO, and DANIEL WACKS, each Individually, Defendants.
Pentkowski & Pastore, Clifton Park (David H. Pentkowski of counsel), for Bell Point Shores Homeowners Association, Inc. The Murray Law Firm, PLLC, Clifton Park (Jacqueline Phillips Murray of counsel), for plaintiffs. Abrams Garfinkel Margolis Bergson, LLP, New York (Andrew W. Gefell of counsel), for defendants.
Unpublished Opinion
Pentkowski & Pastore, Clifton Park (David H. Pentkowski of counsel), for Bell Point Shores Homeowners Association, Inc.
The Murray Law Firm, PLLC, Clifton Park (Jacqueline Phillips Murray of counsel), for plaintiffs.
Abrams Garfinkel Margolis Bergson, LLP, New York (Andrew W. Gefell of counsel), for defendants.
Robert J. Muller, J.
The facts of this matter are set forth in a prior decision of this Court (61 Misc.3d 1219[A], 2018 NY Slip Op 51575[U] [Sup Ct, Warren County 2018]), and will not be repeated at length. As relevant here, plaintiffs own Lots 2 and 13, respectively, in the Bell Point Shores Subdivision (hereinafter the Subdivision) on the shores of Lake George in the Town of Bolton, Warren County. Northwest Bay Partners, Ltd. (hereinafter NBP) is the former owner of Lots 3, 4, 5, 7, 9, 10, 11, 15, 16, 17 and 18. The remaining Lots are owned by defendant Thomas J. Damiani, Tom Herrick, defendant Joseph A. Jordan, defendant Everett R. Vallorano, and defendant Daniel Wacks, respectively.
The Court was apprised during oral argument that Jordan "just sold his property." That being said, the record does not include proof of any such sale, nor does it include the identity of the new owner.
All Lots in the Subdivision are subject to a certain "Declaration of Covenants, Conditions, Restrictions, Easements, Charges and Liens" (hereinafter the Declaration) enforced by Bell Point Shores Homeowners Association, Inc. (hereinafter the HOA), a non-profit corporation formed for that sole purpose. The Declaration requires the owner of each Lot to pay annual assessments. NBP, however, failed to pay assessments for any of its Lots from 2011 to 2017, contending that it was entitled to certain offsets for the value of work performed on the Subdivision by its sole shareholder, Michael O'-rien. While the HOA filed several liens against NBP relative to these outstanding assessments, it never took any further action - instead attempting to settle with NBP.
On October 6, 2017, plaintiffs filed notices of lien in the right of the HOA against Lots 11, 16, 17 and 18 and then, on October 12, 2017, plaintiffs commenced an action in the right of the HOA to foreclose upon those liens (hereinafter action No. 1). Plaintiffs then commenced a second action in the right of the HOA on October 27, 2017, seeking a money judgment in the amount of $902,325.76 for those annual assessments allegedly due and owing on Lots 3, 4, 5, 7, 9, 10 and 15 (hereinafter action No. 2). Finally, plaintiffs commenced the instant action in the right of the HOA on December 12, 2017, alleging breaches of fiduciary duty against certain members of the HOA's Board of Directors - namely, Damiani, Jordan, Vallorano, and Wacks.
By Decision and Order dated November 14, 2018, the complaint in action No. 2 was dismissed based upon a finding that plaintiffs lacked standing. Action No. 1 was thereafter settled, with an Order on Stipulation Cancelling Lis Pendens and Discontinuing Action entered on December 13, 2021. Presently before the Court is the HOA's motion seeking to be substituted as plaintiff in the instant action.
While a notice of appeal was filed in this action on December 19, 2018, it was never perfected. A stipulation discontinuing action No. 2 was then filed on December 15, 2021, which stipulation appears to pertain to certain counterclaims asserted by NBP and O'Brien.
CPLR 1021 provides that "[a] motion for substitution may be made by the successors or representatives of a party or by any party." The motion must "be made within a reasonable time" (Silberstein v Silberstein Awad & Miklos, P.C., 173 A.D.3d 798, 798 [2d Dept 2019]), with the determination of reasonableness requiring consideration of three factors: (1) the diligence of the party seeking substitution; (2) prejudice to the other parties; and (3) whether the party to be substituted has shown that the action has merit (see id.; Suciu v City of New York, 239 A.D.2d 338, 338 [2d Dept 1997]; Mansfield Contr. Corp. v Prassas, 183 A.D.2d 878, 879 [2d Dept 1992]).
Here, the HOA has submitted the affidavit of Joseph Russell in support of its motion. Russell, who is the owner of plaintiffs, states that he now serves as President of the Board of Directors of the HOA and, "[a]t a meeting of the current Board of Directors... held on the 21st day of March, 2022, a motion was made and carried to authorize the attorney for the [HOA] to seek to substitute [the HOA] as... plaintiff in [this] action and to continue [this] action on behalf of all of the other members of the [HOA]." Russell further states "that the [HOA] has the most direct interest in pursuing this [action] and should... be substituted as... plaintiff [to] protect the rights of all homeowners within the [HOA]." Counsel for plaintiffs has also submitted an affidavit "join[ing] in and support[ing] the HOA's [motion]."
Defendants have submitted the affidavit of Damiani in opposition, who served on the Board of Directors of the HOA from 2000 to 2021. Damiani states as follows:
"Russell tabled this action and focused on prosecuting [action Nos. 1 and 2], which ultimately forced [NWB] to file for bankruptcy protection. In 2021, the bankruptcy proceeding resulted in the HOA receiving money from [NWB] in connection with settling the unpaid assessment claims, and Russell acquiring [NWB's] 11 [L]ots.
"Shortly thereafter, in October 2021, the most recent annual meeting of [the] HOA unit owners was held, and the Russell-controlled entities, owning 13 of the 18 [L]ots, which equates to an approximately 72% ownership share in the HOA, elected Russell, John Lasalandra and Rebecca Fagan, associates of Russell who are not otherwise affiliated with the HOA, Herrick and Jordan to the Board, which Russell controls. At an ensuring [sic] Board meeting, the Russell-controlled Board designated Russell as President, Herrick as Vice President,... Lasalandra as Secretary, and... Fagan as Treasurer.
"Somehow, this is not enough for Russell. After four-plus years of inactivity, Russell has conveniently returned to prosecuting this action in order to coerce and intimidate [d]efendants, which in the end will not be successful. Adding insult to injury, by this [s]ubstitution [m]otion, Russell seeks to substitute the HOA for [p]laintiffs in order to shift the cost of litigating this action from [p]laintiffs to the HOA."
In reply, the HOA submitted the affidavit of its counsel, who states as follows:
"The current [B]oard of [D]irectors consists of five (5) members of the [HOA], one of which is Joseph A. Jordan, a named defendant.
"With Mr. Jordan abstaining from the vote, the remaining four (4) members unanimously voted to authorize the making of this motion for the HOA to take the place of the current plaintiffs.
"Since the making of this motion, the same members have voted to accept the assignment of the causes of action, currently the subject of this suit, from the named [p]laintiffs.
"It is undisputed that any recovery arising from this action [will] run to the members of the HOA and not exclusively the current [p]laintiffs. To that end, it is the Board of Directors of the HOA, representing all of its members, that is best suited to pursue this action."
Diligence is the first factor to be considered in determining whether the HOA moved for substitution within a reasonable time and - given the facts of this case - the inquiry is not a simple one. The defendants named in this action were all members of the Board of Directors of the HOA when the action was commenced and, as such, they would never have filed a motion seeking to have the HOA substituted as plaintiff. Indeed, they were being sued by plaintiffs for breach of their fiduciary duty to the HOA. A substitution would have made no sense whatsoever. The landscape is now very different. Plaintiffs own 13 of the 18 Lots in the Subdivision and Russell serves as President of the Board of Directors. Plaintiffs and the "new HOA" - for lack of a better term - are essentially interchangeable.
That being said, while the new HOA perhaps acted diligently in filing this motion six months after Russell took over as President, plaintiffs did not. Plaintiffs allowed the instant action to sit dormant for 5 years, and they are now looking to capitalize on the delay. If the new HOA succeeds in this motion, then plaintiffs will avoid the payment of any further legal fees - as they will be covered by the HOA. Plaintiffs should not be permitted to capitalize on their own inaction. Under the circumstances, plaintiffs' lack of diligence is imputed to the new HOA.
During oral argument, counsel for the HOA indicated that this action sat dormant because of NWB's lengthy bankruptcy proceeding. NWB, however, is not a party to this action and as such, this action was not subject to an automatic stay. Indeed, there was nothing impeding plaintiffs' continued prosecution of this action during the bankruptcy, with the issues under consideration here distinct from those in the bankruptcy.
Insofar as the second factor is concerned, the Court finds that the delay in seeking substitution has resulted in prejudice to defendants. At the outset, the Board of Directors now appears to include two individuals - Lasalandra and Fagan - whose interest in the HOA is unclear. As set forth above, Damiani contends that - aside from being associates of Russell - they are not otherwise affiliated with the HOA, and the HOA does not refute this contention in its reply papers. That being said, during oral argument counsel for plaintiffs advised the Court as follows:
"During or as a result of the bankruptcy settlement, 11 [L]ots were acquired by 11 separate LLCs, and Mr. Lasalandra and Ms. Fagan have membership interests in those LLCs, and as such, qualify as owners for purposes of having the ability to serve on the [B]oard."
There is unfortunately no proof of any such ownership in the record before the Court, nor is there an explanation of the relationship - if any - between plaintiffs and these "separate LLCs." Such explanation would certainly be helpful given Damiani's contention that Russell acquired NWB's 11 Lots in the bankruptcy settlement, which contention is also unrefuted in the papers.
The Court further finds that those defendants who remain members of the HOA will suffer prejudice because they will be forced to fund a case against themselves. While counsel for the HOA states that any recovery arising from this action will go to the members of the HOA and not exclusively to plaintiffs, this statement is not entirely accurate - if found liable for breach of fiduciary duty, defendants may be paying damages and not sharing in them.
While counsel for the HOA indicated during oral argument that defendants have insurance coverage for any potential liability in this action, defense counsel clarified that - while insurance is covering the defense - there is no assurance that it will cover damages.
Finally, with respect to the last factor, the HOA has made no effort whatsoever to demonstrate the merit of the instant action. The allegations in the complaint are not so much as mentioned in the motion papers.
Briefly, defendants contend that the HOA lacks standing to seek substitution as plaintiff because it is neither a party to this action nor a successor-in-interest to, or representative of, plaintiffs. While this contention need not be considered in view of the decision rendered, the Court nonetheless finds that the contention is likely without merit. "Standing to make the motion for substitution is conferred on any person with a direct stake in the matter" (Vincent C. Alexander, Practice Commentaries, McKinney's Cons Laws of NY, CPLR C1021:1) and, here, there is little dispute that the HOA has a direct stake. Indeed, this is a derivative action under N-PCL § 623 and was brought by plaintiffs "in the right of" the HOA.
To the extent that CPLR 1018 provides that "[u]pon any transfer of interest, the action may be continued by or against the original parties unless the court directs the person to whom the interest is transferred... be substituted... in the action," the Court notes that it was not provided with copies of any assignments nor proof that the Board voted to accept the assignment of the instant action.
Based upon the foregoing, the HOA's motion is denied in its entirety.
Counsel for the parties are hereby directed to submit a proposed scheduling Order to the Court within thirty (30) days of the date of this Decision and Order.
Forms are available online at https://ww2.nycourts.gov/courts/4jd/motion-terms-rules.shtml.
Therefore, having considered the Affidavit of David H. Pentkowski, Esq., sworn to April 5, 2022, submitted in support of the motion; Affidavit of Joseph Russell with exhibit attached thereto, sworn to March 21, 2022, submitted in support of the motion; Affidavit of Jacqueline Phillips Murray, Esq., sworn to April 6, 2022, submitted in support of the motion; Affidavit of Thomas J. Damiani, Esq., sworn to June 2, 2022, submitted in opposition to the motion; Memorandum of Law of Andrew W. Gefell, Esq., dated June 3, 2022, submitted in opposition to the motion, Affidavit of David H. Pentkowski, Esq., dated June 23, 2022, submitted in further support of the motion; and Affirmation of Jacqueline Phillips Murray, Esq., dated June 24, 2022, submitted in further support of the motion, And oral argument having been heard on March 24, 2023 with David H. Pentkowski, Esq. appearing on behalf of the HOA, Jacqueline Phillips Murray, Esq. appearing on behalf of plaintiffs, and Andrew W. Gefell, Esq. appearing on behalf of defendants, it is hereby
ORDERED that the HOA's motion is denied in its entirety; and it is further
ORDERED that counsel for the parties shall submit a proposed scheduling Order to the Court within thirty (30) days of the date of this Decision and Order.
The original of this Decision and Order has been filed by the Court together with the submissions enumerated above. Counsel for defendants is hereby directed to obtain a filed copy of the Decision and Order for service with notice of entry in accordance with CPLR 5513.